Yesterday afternoon (Tuesday 19/05), Bank Indonesia announced that it decided to maintain its benchmark interest rate (BI rate) at 7.50 percent, and the overnight deposit facility and the lending facility rate at 5.50 percent and 8.00 percent, respectively, after the May Board of Governor’s policy meeting. The central bank is convinced that this interest rate policy will push inflation to the bank’s year-end (revised) target range of 4.0-5.0 percent (y/y) and the current account deficit to 2.5-3.0 percent of GDP. As such, Bank Indonesia ignored requests from the government and business players to cut interest rates in a move to boost the country’s economic growth which had slowed to a disappointing 4.71 percent (y/y) in the first quarter of 2015 (a five-year low).

However, the rupiah had depreciated 0.50 percent to IDR 13,164 per US dollar by 11:28 am local Jakarta time according to the Bloomberg Dollar Index on Wednesday (20/05). As usual, Indonesia’s currency weakens ahead of news from the Federal Reserve. Markets are now focused on the release of the Federal Reserve’s FOMC minutes of its latest two-day policy meeting in April. These minutes will be released later today (20/05). There is still plenty of uncertainty about the timing of higher US interest rates. Most analysts are now saying that September may be a suitable moment for the Fed to raise US interest rates.

The US dollar has also been appreciating today against most currencies as global oil prices slid and April’s US housing starts reached its highest level since November 2007.

Bank Indonesia's benchmark rupiah rate (Jakarta Interbank Spot Dollar Rate, abbreviated JISDOR) appreciated 0.11 percent to IDR 13,169 per US dollar on Wednesday (20/05) as it still had to absorb the positive sentiments of the central bank’s decision to leave its interest rate environment unchanged.

Indonesian Rupiah versus US Dollar (JISDOR):

| Source: Bank Indonesia

Indonesia’s benchmark stock index (Jakarta Composite Index) had climbed 0.52 percent to 5,296.56 points by 11:38 am local Jakarta time on Wednesday (20/05).